deficit reduction

Mark Steyn makes an interesting—indeed, vitally important—point about government spending. The Left is always keen on telling us that we are under-taxed, or that the "rich" aren’t paying their fair share, or some such nonsense. We’ve argues long and hard here that what we face is not a revenue problem, but a spending problem. Mr. Steyn pithily sums up an important bit of evidence for that assertion.

The total combined wealth of the Forbes 400 richest Americans is $1.5 trillion. So, if you confiscated the lot, it would barely cover one Obama debt-ceiling increase.

That’s really the problem in a nutshell. This week, the President asked for a $1.2 trillion debt increase. We could pay for it, I suppose, by confiscating all the wealth of the Forbes 400, and have a nice $300 billion left over…but there won’t be too many people left that we can soak to cover the next debt ceiling increase. Also, as a point of academic interest, President Obama’s debt ceiling increase is $200 billion more than the entire national debt was in 1980.

To the extent we do have a revenue problem, perhaps it’s not that the rich pay too little, but rather that the poor do. 47% of American’s don’t pay any income tax at all. Which means that the "soak the rich" argument can really be boiled down to the 47% of Americans that don’t pay income taxes think the remaining 53% aren’t paying their fair share.

Well, someone isn’t, at any rate.

At the deepest levels within our governing structures, we are committed to living beyond our means on a scale no civilization has ever done. Our most enlightened citizens think it’s rather vulgar and boorish to obsess about debt. The urbane, educated, Western progressive would rather "save the planet," a cause which offers the grandiose narcissism that, say, reforming Medicare lacks.

And reforming Social Security, while we’re at it. Which we aren’t. And which, combined, will eat up the entire Federal budget in the not-too-distant future.

Something that can’t go on forever, won’t. It’d be great to have a first-class military, generous Medicare and Social Security benefits. Along with all the rest of the coddling state that supports in the grand manner to which we’ve become accustomed. But the future won’t allow us to be that generous. You see, we’re heading to a $16.5 trillion national debt, because, instead of being prudent with our money in order to meet all those future obligations, we blew it.

We spent money we didn’t have to build carrier groups and JDAMs, No Child left Behind and Medicare Part D. At the current rate, the federal government will, sometime this century, consist of a single department that does nothing but collect taxes and issue Social Security checks, because there won’t be one red cent left over for Defense, Justice, State, Commerce, Agriculture, or Treasury. And, we probably won’t be able to afford even that.

Mainly, because we won’t be able to produce much of anything.

Last January, the BBC’s Brian Milligan inaugurated the New Year by driving an electric Mini from London to Edinburgh, taking advantage of the many government-subsidized charge posts en route. It took him four days, which works out to an average speed of 6 mph — or longer than it would have taken on a stagecoach in the mid-19th century. This was hailed as a great triumph by the environmentalists. I mean, c’mon, what’s the hurry?

What indeed? In September, the 10th anniversary of a murderous strike at the heart of America’s most glittering city was commemorated at a building site: The Empire State Building was finished in 18 months during the Depression, but in the 21st century the global superpower cannot put up two replacement skyscrapers within a decade.

The 9/11 memorial museum was supposed to open on the 11th anniversary, this coming September. On Thursday, Mayor Michael Bloomberg announced there is "no chance of it being open on time." No big deal. What’s one more endlessly delayed, inefficient, over-bureaucratized construction project in a sclerotic republic?

This is—as hard as it may be to believe—the same country that, in 1940, had an army smaller than Rumania, and by 1945, had the military power to, had we wanted, rule the globe. Now, we’re the country that can’t replace the World Trade Center in 10 years. This is not emblematic of a can-do country with the willingness to attack and solve problems with a vengeance.

But the president thinks that if we can only tax millionaires more, we can fix this place up quick.

Mark Steyn, writing in Investors Business Daily, isn’t pulling any punches about what the near future holds for us if the Federal government keeps spending like there is no tomorrow. There won’t be.

[B]y 2020 just the interest payments on the debt will be larger than the U.S. military budget. That’s not paying down the debt, but merely staying current on the servicing — like when you get your MasterCard statement and you can’t afford to pay off any of what you borrowed but you can just about cover the monthly interest charge.

Except in this case the interest charge for U.S. taxpayers will be greater than the military budgets of China, Britain, France, Russia, Japan, Germany, Saudi Arabia, India, Italy, South Korea, Brazil, Canada, Australia, Spain, Turkey and Israel combined.

When interest payments consume about 20% of federal revenues, that means a fifth of your taxes are entirely wasted. Pious celebrities often simper that they’d be willing to pay more in taxes for better government services.

But a fifth of what you pay won’t be going to government services at all, unless by "government services" you mean the People’s Liberation Army of China, which will be entirely funded by U.S. taxpayers by about 2015…

And even those numbers presuppose interest rates will remain at their present historic low. Last week, the firm of Macroeconomic Advisors, one of the Obama administration’s favorite economic analysts, predicted that interest rates on 10-year U.S. Treasury notes would be just shy of 9% by 2021. If that number is right, there are two possibilities:

The Chinese will be able to quintuple the size of their armed forces and stick us with the tab. Or we’ll be living in a Mad Max theme park. I’d bet on the latter myself.

And we all know who’ll be running Bartertown.

Look, there’s no way to sugar-coat this. What’s coming isn’t gonna be pretty. Too many politically powerful groups have their fingers stuck too deeply into the DC pie to let it all just slip away without fighting tooth and nail. There are too many people who believe the gravy train of benefits coming out of DC should be endless to kiss that goodbye without a fight.

Look at what has been happening in Greece. They’ve built up two generations of people who cannot and will not accept that they’re simply out of money. Despite the fact that system has been thoroughly looted, they are adamant that the looting should continue.

If we don’t cut spending—and I mean real cuts, not cuts to some imaginary baseline that has $9 trillion is spending increases baked in—and some sort of serious tax reform that widens the tax base to raise more revenue, we’re done.

And don’t come back at me with some lame "Our GDP:Debt ratio was 120% at the end of WWII" silliness. Yes it was. And you know how we fixed it? We cut Federal spending from $92 billion in 1945 to $38 billion in 1949. For 2011, 40% of the federal budget was financed with borrowed money: We’ll spend $3.818 trillion, of which $1.645 trillion is borrowed. If we funded only defense, Medicare/Medicaid, and Social Security, and interest on the debt, we’d still have a deficit of $673 billion. Just to balance the budget this year—forget paying off any debt—we’d have to cut an additional ~25% from Health, Defense, and Pensions. Follow the link and download the CSV file, open it up in Excel, and run the numbers yourself. The magic number to balance the budget this year is the revenue of $2.174 trillion.

There’s no big mystery as to why we got a downgrade from S&P. The mystery is why Fitch and Moody’s haven’t downgraded US debt yet.

To begin paying down the debt will require massive cuts in government spending, substantially widening the tax base, and some healthy economic growth—and good luck with that as we add another couple hundred k government workers to the unemployment roles, lay off 1/3 of government contractors to boot, and start asking the bottom 50% of taxpayers to actually, you know, pay taxes, along with everyone else.

If you’re under 50, and reach retirement age with any modicum of personal wealth, you can forget seeing a dime in Social Security or Medicare benefits when you retire. You’ll be means-tested right out of all that.

You think the debt ceiling battle was disruptive? Well, hold on to your hats, folks.

Gangs of anything are rarely good things. And when it comes to the Senate’s Gang of Six, that caution is doubly true. Today the Gang proposed a bipartisan deficit plan to which the president–eager to kick the deficit can down the road past the 2012 election–gave his qualified approval. There is only this summary (PDF) available at the moment, and there is much to digest.

The good news is that there is at least some sanity in it.

Personal and corporate income taxes would be reduced to a top rate of 29%.

The Alternative Minimum Tax–which has turned into a horrific taxation burden–will be eliminated.

The CLASS Act provision of Obamacare would be repealed.

The bad news–and there’s always bad news with these guys–is that the budget reduction portion of it is notional. As usual in Washington, it calls “cuts” what the rest of us would call “reductions in the rate of spending increases”. In other words, spending isn’t actually reduced at any point, they just promise not to spend as much as they previously said they would. The main problem points include:

None of the plan’s “spending caps” apply to entitlement programs, only discretionary spending. So the 800-pound gorilla of the budget remains untouched.

Reform tax expenditures for health, charitable giving, homeownership, and retirement. These aren’t expenditures! They are allowing you to keep your money for IRAs, 401(k)s, Mortgage interest, etc. So, that sounds…ominous. Especially since the plan assumes that these, and similar reforms will net an additional $1 trillion in revenue.

No reform at all of Medicare of Medicaid.

A politically-imposed requirement to use the Chained-CPI as an inflation measure, presumably to cut down on cost-of-living increases, as the Chained-CPI understates inflation even more than the current CPI does.

Requires the tax code to become more “progressive”, so you can expect serious increases in Capital Gains taxes.

No Social Security reform at all, unless there’s 60 votes for it in the Senate, i.e., sponsors for such reform prior to its submittal to the Senate for consideration. So, essentially, never.

There’s no information at all on how big or expensive government will be, say 10 years down the road. No information on how strict the spending caps will be, making me expect another Gramm-Rudmann deal: Good on paper, ineffective in practice.

Basically, this plan, so far as I can tell, contains some eye-candy on income taxes to draw in the supply-siders, with the actual deficit reduction portion sounding…sketchy. Or in the case of entitlements, by far the source of most federal spending, non-existent.

Something to keep in mind when President Fiscal Responsibility lectures us all tonight on how important fiscal discipline is and how it is a priority of his to reduce the deficit and debt.

The US budget deficit shot up 15.7 percent in the first six months of fiscal 2011, the Treasury Department said Wednesday as political knives were being sharpened for a new budget battle.

The Treasury reported a deficit of $829 billion for the October-March period, compared with $717 billion a year earlier, as revenue rose a sluggish 6.9 percent as the economic recovery slowly gained pace.

2011 spending isn’t something he “inherited”. It’s his. And the budgets he previously laid out for the next 10 years are not deficit or debt reducing budgets by any stretch.

As we know, last year’s deficit was in the $1.4 trillion range, much closer to the CBO estimate than the White House fantasy. Same with ‘09. Sod disregard the White House spin and go with the CBO’s 2 year track record of being pretty much on the money – no pun intended.

Also note that the deficit is supposed to be under a trillion dollars this year and supposedly hits its lowest point when? Why election year of course. Then it again steadily builds as ObamaCare relentlessly kicks in, approaching a trillion dollars again in ‘19.

This is the White House projected budgets, folks. This is what they see us spending, or plan on anyway. But tonight we’re going to be treated to a “major speech” by the architect of this mess telling us how concerned he is with the deficit and how important it is to him to address it.

Print this chart and keep it handy when he presents his spin.

Oh, by the way, remember the campaign promise to cut the deficit in half by the end of his first term? You didn’t know at the time that $800 billion in the hole would do the trick did you? You didn’t know he planned on a deficit of $1.8 trillion did you?

Tomorrow night President Obama will address the nation in an “important” speech – or is it “major” speech – about how he thinks we ought to cut both the deficit and the debt.

Clue: It involves raising taxes.

Yeah, the backhanded way of saying, “our problem is one of not enough revenue instead of too much spending”. And how does the President plan on selling this? Well if his spokesman, Jay Carney is to be believed, an old bromide is the answer:

“Everyone,” he said, must “share in the burden of bringing our fiscal house into order.”

You could spend all day on those two sentences alone. Yes, Mr. Carney and Mr. Obama, you can “simply slash entitlement, lower taxes and call that a fair deal”. Despite rhetoric to the contrary, our problem is growing government and out of control spending. Slash both the size of government and severely limit its ability to spend more than it takes in and you’ve taken a major step in “bringing our fiscal house into order”. That’s what’s fair.

But of course, that assumes you don’t by the implication that this problem we suffer under is one of all our making. Because if you do, then you buy into the assumption that we must all “share in the burden” of fixing it. No sale here.

First, we don’t all agree that it in order to fix what profligate and incompetent legislators have done over the years we must give them more money to waste.

No matter how many times they say it, it doesn’t make it right. They have more than enough revenue to properly fund the Constitutionally mandated government. What they don’t have enough revenue to continue carrying on is the extra-Constitutional nonsense called entitlements. That means entitlements must be “slashed” to the point that they’re self-sufficient and don’t add to either the deficit or the debt. Additionally, once those are addressed, government should be trimmed of all the bureaucratic fat it has built up over the decades. If there’s a problem with morbid obesity in this country it is found in the size of government.

Oh, and don’t forget that the guy who is going to lecture us about fiscal responsibility on Wednesday night has doubled the debt and is running a deficit this year over a trillion dollars (drinking game – knock it back every time he pawns all of that off as an “inherited” problem), not to mention adding a huge new … entitlement program.

The budget deal just negotiated take a first tentative swipe at the size of government. No, it’s not what I’d prefer, but then given what it could have ended up being, I’ll take it. Here’s a rundown of some of the cuts. Ed Morrissey has a few more:

The CR terminates funding for more than 55 programs, for a total savings of well over $1 billion. In addition, the bill terminates two programs funded in ObamaCare (the Consumer Operated and Oriented Plan (CO-OP) and the Free Choice Voucher programs).

The CO-OP, according to some critics, is nothing more than a stealth public option. But to the point – 55 programs is 55 programs. We could probably easily eliminate 5,500, but that’s not the point at the moment – a journey of a 1,000 miles begins with the first step in that direction. That’s what this should be considered and we need to encourage (and reward) this sort of thinking and action.

Another I like:

The legislation also eliminates four Administration “Czars,” including the “Health Care Czar,” the “Climate Change Czar,” the “Car Czar,” and the “Urban Affairs Czar.”

That’s why you have Department Secretaries, although I’d love to see some of the departments eliminated as well. Speaking of those Departments:

Randall Hoven, over at American Thinker, provides us with one of the most succinct and powerful posts I’ve seen is quite a while.

Remember this quote?

“If we do nothing to slow these skyrocketing costs, we will eventually be spending more on Medicare and Medicaid than every other government program combined. Put simply, our health care problem is our deficit problem.” President Obama, September 2009.

That was the “promise” that Obama made – pass health care reform and pass deficit reduction. Except, as usual with this man, it appears the opposite is actually true. And that is to be found in a CBO graph.

So the projection shown in the graph is that if we were to spend on those programs at the March 2010 baseline (as the law reads now) from now till 2020 we’d spend about 400 billion, but with the new and improved ObamaCare, that goes to over 600 billion? Yup, real “deficit reduction” in that package, huh?

We’re also seeing the stirrings of a move from the left to dramatically and drastically cut military spending. Already the war in Afghanistan has gone from the “good and necessary war” per Democrats to one they don’t want to fund anymore. Apparently the military is the area of choice within which the Democrats want to “cut spending”. Again, Hoven, looking at CBO numbers, provides some context to the debate:

The bottom line is, of course, that ObamaCare is the biggest “deficit reduction” hoax foisted upon the citzenry of the US since the debate about income tax which claimed it would never rise above 2%. And, in fact, it is the rise of entitlement spending – not military spending – where our problem lies.

And for those of you who bought into the monstrosity of ObamaCare under the “deficit reduction” premise – shame on you. Why is it you demonstrate common sense when email scammers from Nigeria try to get your bank account number, but you fall right into the largest legislative scam in recent history based on vague and nonsensical promises that most 5th graders could see through?

Of course you’re most likely among the same people who bought into the hype surrounding this empty suit we now have as a president, so I shouldn’t be that suprised I suppose.